Secondary

legislation

Silly Season is upon us

The Wikipedia definition reads:

In Australia, New Zealand, and South Africa, the silly season has come to refer to the Christmas/New Year festive period on account of the higher than usual number of social engagements where the consumption of alcohol is typical.

In the financial services industry, is has become traditional for major legislative changes to be embarked or elaborated on as the end of the year draws near.

In fairness though, this year’s onslaught came a little earlier, although slightly later that originally announced.

In the past few days, we saw the publication of proposed amendments to the Fit and Proper requirements, as well as amended proposals to the Financial Sector Regulation Bill, also known as the Twin Peaks legislation.

FSR Bill

The extract below is from the comments matrix, reflecting input from various role players in the industry. The Unlimited noted the following:

“We support what is contained in the Preamble to the Bill, including the intention to ensure the stability of the financial system and the protection of financial customers. We submit, however, that Treasury also has an obligation to ensure that the industry remains accessible to aspirant entrants. We also note that Treasury has often stated that financial inclusion is a key objective. Within this context, the raft of new regulation being introduced under the ambit of the financial sector reform programme will ultimately translate into additional complexity in an industry that is already heavily regulated.”

“Ultimately, increasing regulation will drive (compliance) costs for financial sector participants – including for the purposes of maintaining prudential soundness. Those costs are likely to be pushed through to customers.”

“The proposals contained in the Bill need to be reviewed within the context of a national economy in desperate need of stimulation, including crippling youth unemployment. These socio-economic factors have the potential to destabilise society. In these circumstances all role players have an obligation to promote an environment that encourages local and foreign investment, including job creation and entrepreneurship. We trust that Treasury will have these considerations front of mind during the process of finalising the Bill.”

“We respectfully submit that the already heavily regulated financial industry will be complicated even further once the Bill is enacted. We accordingly urge Treasury to consider how its impact can be minimised within the context of needing to remove entry barriers, improve accessibility to financial services and ultimately stimulate the economy. The financial sector weathered the 2008 financial crisis successfully. With that in mind one must question the need for additional regulation.”

Fit and Proper Proposals

The Banking Association of South Africa expressed similar sentiments in its feedback on proposed amendments to Section 8 of the Fit and Proper requirements:

“The content of Section 8 is too widely framed and gives room for too much interpretation and possible arbitrary actions. It is suggested that practice notes / guidelines are published to flesh out what is intended to be covered.”

“It is submitted that the consideration of “pending proceedings” may subject an affected person to unfair treatment especially where there is a probability that the outcome could be in the affected person’s favour due to malicious or impetuous allegations having been raised. This would void the common law rule of natural justice, further advocated in PAJA because it has the unintended effect of predetermining an outcome and denying such person equal access to employment. It is further an operational impracticality to elicit such information or force a candidate to produce such information. The reference to “or is the subject of any pending proceedings which may lead to such a conviction” should be struck out of such provision.”

“The above risk of pending proceedings resulting in a finding against a candidate could be averted by mandating all candidates for fit and proper roles to declare details of any pending proceedings against such person, prior to appointment. Due to the strict governance structures within banks such candidate’s appointment would probably be put on hold or disallowed until a positive outcome.”

In response, The FSB noted that there are avenues for resolving issues:

“…any decision of the Registrar to act under sections 8 and 9 is subject to PAJA. The affected party will therefore have an opportunity to respond to any proposed decision.”

“Further, a person aggrieved by the decision of the Registrar has a right of appeal to the FSB Board of Appeal. That right will be extended to representatives under the FSR Bill that provides for a right of appeal to the Appeal Tribunal against a decision of a FSP.”

This appears to be in contrast to the stated intent of a new pre-emptive approach to regulation and could result in the Appeal Tribunal being swamped with work.

The anarchy currently experienced at tertiary educational facilities can largely be ascribed to the abject failure of the correct implementation of outcomes based education. Let us pray that the same will not happen in the financial services industry when outcomes based regulation largely replaces the rules based version.

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